CONTENT · 2020. 4. 4. · TKH develops, produces and delivers specialty cable and ‘plug and...

| TKH GROUP ANNUAL REPORT 20192

CONTENTSUMMARIZED FINANCIAL STATEMENTS127 Consolidated balance sheet128 Consolidated statement of profit and loss129 Consolidated statement of comprehensive income130 Consolidated statement of changes in group equity131 Consolidated cash flow statement132 Notes to the summarized financial statements

OTHER INFORMATION 140 Regulation for profit appropriation140 Proposal for profit appropriation141 Independent auditor’s report 142 Stichting Administratiekantoor TKH Group 143 Stichting Continuïteit TKH144 Operating companies146 Sustainability statements and reporting system152 Glossary and alternative performance measures154 Ten years overview

TKH AT A GLANCE3 Profile4 TKH at a glance5 2019 Highlights*6 Message from the CEO

8 BUSINESS & MARKETS*9 Business segments10 Core technologies11 Vertical growth markets

12 STRATEGY*12 Strategy15 ’Simplify & Accelerate’ program

17 EXTERNAL ENVIRONMENT*18 Trends & developments20 Stakeholders22 TKH and the Sustainable Development Goals24 TKH in the supply chain25 Competitive landscape

26 LONG-TERM VALUE CREATION*

DEVELOPMENTS & RESULTS*29 Financial and non-financial results

30 INNOVATIVE & VALUE CREATION30 General developments33 Financial developments 35 Developments per business segment 39 Acquisitions, investments and divestments 41 Dividend proposal

42 TALENT EMPOWERMENT

50 BEING RESPONSIBLE

59 OUTLOOK

GOVERNANCE 61 Members Executive Board*62 Members Supervisory Board

63 REPORT OF THE SUPERVISORY BOARD63 Report of the Supervisory Board72 Remuneration report

80 CORPORATE GOVERNANCE*80 Corporate Governance at TKH

86 RISK MANAGEMENT*95 Management statement

96 THE TKH SHARE*

SECTION99 THE POWER OF TKH

The paragraphs marked with a * belong to the Report of the Executive Board as defined in Title 9, Dutch Civil Code 2.

TKH AT A GLANCEDEVELOPMENTS & RESULTS GOVERNANCE SECTION FINANCIAL STATEMENTS OTHER INFORMATION

3 TKH GROUP JAARVERSLAG 2019 |

TKH IN PERSPECTIEF

TKH GROUPTechnology fi rm TKH Group NV (TKH) focuses on high-end innovative technologies in

high growth markets within three business segments: Telecom, Building and Industrial

Solutions.

Through a combination of technologies across the three business segments, TKH

offers superior solutions that support that increase the effi ciency, safety and security

of its customers. The technologies are offered together with software to create smart

technologies and one-stop-shop solutions with plug-and-play integrated technologies.

TKH operates on a global scale. Its growth is concentrated in Europe, North America

and Asia. With 5,980 employees (FTE), TKH realized a turnover of € 1.5 billion in 2019.

PROFILE


| TKH GROUP ANNUAL REPORT 20194 | TKH GROUP ANNUAL REPORT 20194

TKH aims to be a leading innovative technology niche player that through combinations

of its four core technologies, offers total systems which lead to greater effi ciency, more

comfort and improved safety for its customers. By offering best-in-class solutions, TKH

constantly seeks to exceed its customers’ expectations. TKH strives to be an attractive

employer and to be a solid investment for its shareholders, whereby a socially responsible

way of doing business is placed centrally.

MISSION

TKH WORLDWIDENETHERLANDS

€ 301 mln turnover

2,074 FTE

ASIA


976 FTE

NORTH AMERICA


406 FTE

EUROPE (OTHER)


2,435 FTE

OTHER

€ 41 mln turnover

89 FTE

CORE VALUES TKH GROUP

• ENTREPRENEURSHIPStrong in observing new opportunities and excellent in everything that we do.

• INTEGRITYAlways honest and respectful in our dealings with colleagues, customers and other stakeholders.

• OPENNESS AND TRANSPARENCY One of the foundations for long-term value creation and successful business operations.

• RISK AWARENESS AND ACCOUNTABILITY Involvement in day-to-day activities and making the appropriate choices following close consideration.

• SUSTAINABILITY Making a positive contribution to the environment and the

social aspects of doing business.

INDUSTRIAL SOLUTIONS

BUILDING SOLUTIONS

BUSINESS SEGMENTS

TELECOM SOLUTIONS

201 € MLN

745 € MLN

544 € MLN

TKH AT A GLANCE

1,489.6 € MLN


5 TKH GROUP ANNUAL REPORT 2019 | 5 TKH GROUP ANNUAL REPORT 2019 |

2019 HIGHLIGHTS

TKH AT A GLANCE

NET PROFIT

Net profit before amortization and one-off income and expenses attributable to shareholders declines by 7.8% to € 105.3 million – in line with the previously communicated bandwidth (€ 102 - € 108 million).

DIVIDEND PROPOSAL

Dividend proposal: € 1.50 per (depositary receipt of an) ordinary share (2018: € 1.40).

TURNOVER

Turnover increases by 2.2% to € 1,489.6 million, organic -1.9%.

EBITA

EBITA before one-off income and expenses declines by 1.5% – decline in Industrial Solutions due to market conditions, increase in Telecom and Building Solutions.

SIMPLIFY & ACCELERATE

Good progress ‘Simplify & Accelerate’ program.

ACQUISITIONS

Acquisitions of innovative technology companies: • Commend AG.• ParkEyes.• SVS-Vistek. • FocalSpec.

1,489.6 € MLN 172.5 € MLN

1.50 €

CREDIT FACILITY

Increase in existing committed credit facility to € 500 million, from € 350 million, with unchanged conditions and duration.

FINANCIAL STRATEGIC

105.3 € MLN

• Divestment activities on schedule: € 250 million turnover of the targeted € 300 to € 350 million in divestments already realized.

• Integration of vision and security businesses proceeds well.

• Growth in order book and outstanding quotations in subsea and Airfi eld Ground Lighting (AGL) activities.

• Turnover share from vertical growth markets > 60%.

500 € MLN > 60 %TURNOVER SHAREVERTICAL GROWTH MARKETS



TKH ON THE MOVEThe world is changing rapidly, and TKH is changing with it. By implementing our plans in

an enterprising and energetic manner, we have achieved many of our objectives. Our

innovations have advanced our technological prowess, but have also been a success in

terms of market penetration. Important examples are the advances we have made in

machine vision for 5G smartphones, the UNIXX tire-building technology, subsea cable

systems and the CEDD/AGL connectivity technology. All of these have created

opportunities that lay a strong foundation for growth and value creation in the future.

MESSAGE FROM THE CEO



7 TKH GROUP ANNUAL REPORT 2019 |

Sustainability is growing steadily more important and we refl ect that by pursuing a consistent policy in relation to Corporate Social Responsibility. We take the view that sustainability is the key to all our policy decisions and is the source of our ability to create a society fi t for the generations to come. That in turn calls for intensifi cation of the collaboration with chain partners so that we can promote sustainability in a wider context. One of the ways in which sustainable developments can be embedded more deeply in society is by implementing the Sustainable Development Goals (SDGs).

In addition to our desire to offer our employees an inspiring working climate, their health and safety is our greatest concern. Unfortunately, in December we were confronted with a fatal accident at our subsea cable factory in Lochem, where a highly valued and passionate colleague died. An incident that has a major impact on the family and the entire organization.

We are grateful to our customers, business partners, Supervisory Board and shareholders and holders of depositary receipts of shares for the trust they have shown in TKH and the support they give us to pursue the company’s further growth and its ambitions.

On behalf of the Executive Board,Alexander van der Lof, chairman

TKH AT A GLANCE

It was a turbulent year, as geopolitical and social developments led to a cautious approach to investment by businesses in some market sectors. A caution that was driven by uncertainty about economic growth and the impact of the trade restrictions imposed by the world’s superpowers, and at micro level by the problems with nitrogen and PFAS in the Netherlands. Under these circumstances, there were periods when we decided to maintain capacity at a higher level than was necessary at that moment. These decisions are crucial for safeguarding the correct balance in the short-term and medium-term results.

We took an important step with the launch, in the middle of 2019, of a new phase in our strategic transformation program, named ‘Simplify & Accelerate’. The execution of the program has been a major priority and it is progressing smoothly. We are well on the way to meeting the new profi t targets and accelerating the rate of value creation at TKH. Despite the diffi cult conditions in some markets, in the second half of the year the ROS was 12.9% and is therefore approaching our new target for the ROS of at least 15%.

As part of the transformation program, we are divesting activities in which the margins are naturally small or which have only limited potential for organic growth. A large proportion of the envisaged € 300 to € 350 million in turnover from divestments has already been realized. We have also reduced the number of operating companies through a process of integration based on economies of scale. These measures leads to a simplifi ed organizational structure, with fewer companies and a sharper focus on activities with above-average potential in terms of value creation. What is special is, how our operating companies have taken initiatives, in addition to their planned activities, to complement the ‘Simplify & Accelerate’ program and that the program enjoys broad support and has generated inspiration and energy within our organization.

We took an important step with the launch

of a new phase in our strategic transformation

program, named ‘Simplify & Accelerate’.


TKH AT A GLANCE

BUSINESS & MARKETS

BUSINESS MODEL TKH GROUP

MARINE & OFFSHORE

PARKING TIRE BUILDING INDUSTRY

CARE TUNNEL & INFRA

MACHINE VISION

VISION & SECURITY

MISSION CRITICAL COMMUNICATION CONNECTIVITY

SMART MANUFACTURING

CORE TECHNOLOGIES

BUSINESS SEGMENTS

TELECOM SOLUTIONS BUILDING SOLUTIONS INDUSTRIAL SOLUTIONS

VERTICAL GROWTH MARKETS

VALUE CREATION

INNOVATIONS >15%

EFFICIENCY - COMFORT - SAFETY - SECURITY

FIBRE OPTIC NETWORKS

TKH focuses with its segmentation on the business segments Telecom

Solutions, Building Solutions and Industrial Solutions. The TKH core

technologies -vision & security, mission critical communication, connectivity

and smart manufacturing- are linked to each other to total systems, which

are positioned within these three business segments. TKH focuses on

seven vertical growth markets -Fibre Optic Networks, Care, Tunnel & Infra,

Parking, Marine & Offshore, Machine Vision en Tire Building Industry-

where the (total) solutions are positioned as a ‘one-stop-shop’ for our

customers.




TELECOM SOLUTIONSThe core technologies vision & security, mission critical communication and connectivity are represented in Telecom Solutions. TKH develops, produces and supplies systems ranging from basic outdoor infrastructure for telecom and CATV networks through to indoor home networking applications. Around 40% of the portfolio consists of hub-to-hub optical fi bre and copper cable systems. The remaining 60%, consisting of components and systems in the fi eld of connectivity and peripherals, is deployed primarily in network hubs.

BUILDING SOLUTIONSBuilding Solutions connects the core technologies vision & security, mission critical communications and connectivity in total solutions for security and communications applications in and around buildings as well as for industrial inspection, quality, product and process controls. We focus on effi ciency solutions to reduce throughput times for the realization of installations within buildings, and on intelligent video, mission critical communications, evacuations, access (control) and registration systems for a number of specifi c sectors, including healthcare, parking, marine and offshore, tunnels and airports.

INDUSTRIAL SOLUTIONSThe core technologies vision & security, connectivity and smart manufacturing are represented in Industrial Solutions. TKH develops, produces and delivers specialty cable and ‘plug and play’ cable systems. In a number of specialized industrial sectors, such as tire manufacturing, robotics, medical and machine building industries we deliver innovative, integrated manufacturing systems where TKH’s know-how of automation of production processes and improvements in the reliability of production systems gives the company the differentiating potential.

TKH focuses with its segmentation on Telecom Solutions, Building Solutions

and Industrial Solutions. The four TKH core technologies are connected into

total solutions within the three business segments.

BUSINESS SEGMENTS

TKH AT A GLANCETKH AT A GLANCEDEVELOPMENTS & RESULTS GOVERNANCE SECTION FINANCIAL STATEMENTS OTHER INFORMATION


CORE TECHNOLOGIES VISION & SECURITY Vision technology consists of 2D and 3D camera sensor technology and 3D laser technology in combination with the digital processing of visual information to produce usable images or information for interpretation by people and/or machines. Amongst other things, vision technology is employed for inspections and for quality, product and process control. Within TKH, vision technology plays an important role in medical solutions, industrial automation (tire building, automotive sector, robotics and logistics), consumer electronics and in scientifi c research. Our security technology makes it possible to control and monitor urban environments in relation to safety, comfort and effi ciency, and includes alarms and mission critical communi-cation systems, access, registration and evacuation systems. For the mobility market, camera solutions are delivered for intelligent traffi c systems.

MISSION CRITICAL COMMUNICATION Our communication technology focuses on image transmission, speaking and listening connections, guiding and lighting systems, security and control. The communication technology is often used in combination with our vision & security technology from our group so that through our technologies, we promote among others the effi ciency, safety and security in tunnels, car parks, (professional) health care, airports, football stadiums, schools and fi nancial institutions.

CONNECTIVITYWith our connectivity technology we focus on complete portfolio connectivity solutions for energy distribution and electro technical applications in the construction and infra sectors, as well as data optical fi bre systems for data and communications networks. Custom-made specialty cable systems for the most diverse applications in high-tech environments such as the industrial, marine & offshore wind and medical sectors. Our advanced connectivity technology for contactless energy and data distribution (CEDD) for airfi eld ground lighting systems is an advanced connectivity system that consists of both hardware components and software, which respond to specifi c applications at airports.

SMART MANUFACTURINGTKH uses its knowledge of the automation of production processes for controlling and monitoring industrial processes and also in total manufacturing systems for the production of car and truck tires, and the tin processing and care industries. Engineering and assembly of systems, control and analysis software, as well as connectivity and vision technology, are the basic building blocks for the distinctive manufacturing systems supplied by TKH. Our technology improve the reliability and fl exibility of manufacturing systems, allowing us to respond to the requirements of a number of specialized industrial sectors, such as the tire manufacturing, robotics, medical and machine building industries.

TKH AT A GLANCE

The TKH core technologies –vision & security, mission critical communication,

connectivity and smart manufacturing– are linked to each other to create total

systems and solutions. We focus mainly on the development of our own

advanced technologies and enter into partnerships with suppliers of specifi c

technology components or solutions. Thanks to our thorough knowledge of

processes and techniques, and our understanding of markets, we are able

to employ our technologies in a focused manner which clearly offers our

customers added value. Because the core technologies can be used for

multiple applications, economies of scale is created that makes it possible to

be distinctive. Software plays an increasingly important role as part of our core

technologies, allowing us to integrate them appropriately and to ensure that

they are smart in relation to analysis and control. With our core technologies,

we contribute to a safer environment and ensure that our customers’

processes are effi cient and reliable.

| TKH GROUP ANNUAL REPORT 2019 10



FIBRE OPTIC NETWORKSTKH develops, produces and supplies comprehensive optical fi bre networks which, in addition to optical fi bre cables, also include connectors, pipes, sleeves, fi bre management systems, security and robotic systems and other accessories. Everything can be installed plug-and-play so projects can be completed effi ciently and on time. When required, we help our customers by providing them with training and support during the engineering process and in relation to the installation of networks and maintenance.

CAREThrough a combination of electrical engineering and ICT, TKH provides intelligent solutions for the care sector in the areas of observation, security, visual communications, social alarms and video care for hospital care and home care. Security and alarms can be individually geared to the clients or resident’s health care needs. TKH also supplies total solutions for health care and nursing homes, care for the disabled, mental health care and hospitals. For the pharmaceutical industry TKH develops fully automated logistics systems for medicine packaging and distribution.

TUNNEL & INFRATKH supplies the tunnel & infra sectors with innovative communications and security solutions that meet the high safety requirements, which means that airports, tunnels and roads can be opened safely and on time. For the mobility market, cameras and solutions are supplied in the fi eld of intelligent traffi c systems that are crucial for safety applications. The medium and high voltage energy cables for energy networks respond among others to the demand for alternative energy supplies. We supply advanced connectivity technology for contactless energy and data distribution for application at airfi elds.

PARKINGTKH develops and manufactures innovative parking systems. They range from self-developed video analytics technology designed to monitor parking bays and streamlining traffi c in parking garages to integrated access control, intercom and camera systems. Parking garages can be managed from any place at any time. We provide professional project management, support and advice in the design and execution of parking projects.

MARINE & OFFSHORETKH supplies the marine and offshore industries with innovative subsea cable systems, as well as a comprehensive connectivity package specifi c for those industries. In addition, we supply integrated security and communications systems for use on platforms, ships and luxury yachts. Many of our solutions are geared towards security, safety and effi ciency with a favourable return on investment for our customers.

MACHINE VISIONVision technology consists of 2D and 3D camera sensor technology and 3D laser technology in combination with digital processing of visual information is used to monitor, control or adjust industrial processes. We supply to the robotics, mechanical engineering, consumer electronics, medical and automotive industries.

TIRE BUILDING INDUSTRYWith decades of experience, TKH has developed and refi ned the production technology for tire building systems which is required to produce superior tires for cars and trucks. TKH develops, manufactures, supplies and installs innovative tire building systems which make it possible to manufacture tires with specifi c properties in a highly effi cient way. The highest possible form of automation and monitoring of the production processes with associated “track and trace” requirement is possible via our own camera inspection technology.

VERTICAL GROWTH MARKETS

Within the three business segments, TKH focuses with its solutions on

seven defi ned vertical growth markets. These are markets in which we

can achieve above-average growth. Thanks to close contact with our

customers, we know these markets well, we are familiar with what is at

stake in them and what their requirements are. We aim in particular a high

return on investment for our customers. In the next three to fi ve years, we

expect to achieve turnover growth of € 300 to € 500 million in the seven

vertical growth markets.


STRATEGY PROCESS

TKH’s strategy focuses on technology leadership with four related

core technologies in three business segments. As part of the strategy

process, four priority areas have been defi ned: Innovative, Value Creation,

Talent Empowerment and Being Responsible. Based on these pillars,

we have determined our strategic direction and have defi ned specifi c

objectives how we implement the strategy process.

TKH AT A GLANCE

STRATEGY

SIMPLIFY &ACCELERATE

STRATEGY

BUSINESS & MARKETS

EXTERNAL ENVIRONMENT

MISSION

BEINGRESPONSIBLE

VALUECREATION

LONG-TERM VALUE CREATION LONG-TERM VALUE CREATION

TALENTEMPOWERMENTINNOVATIVE




TKH AT A GLANCE

With our four core technologies we can respond to these growth trends and can offer innovative comprehensive systems by combining these technologies. Investments in research and development and the roll-out of innovations are important areas of focus for growth. Our target is to generate at least 15% of turnover through innovations introduced in the previous two years. As a result, the products comprising our portfolio are at an early stage of their life cycle. We invest predominantly in our own technological development, although we also work closely with other parties on specialisms. We focus on securing a leading position in niche markets. Within our three business segments we have defi ned seven vertical growth markets in which we expect to achieve growth of between € 300 million and € 500 million in the next three to fi ve years.

Healthy balance sheet ratios and a strong operating cash fl ow are top priority in the develop-ment of the company. We wish to achieve an above-average annual increase in earnings per share, and a net debt/EBITDA ratio of no more than 2.0. We will expand through organic growth and acquisitions. In geographical terms the focus for growth is on Europe, North America and Asia. In the case of acquisitions the emphasis is on structurally healthy companies which are aligned with our four core technologies and associated vertical growth markets. We will seek between one and three acquisitions a year, each representing turnover of between € 10 million and € 50 million. In the period ahead the focus will mainly be on organic growth and the optimal integration of acquired businesses within the TKH organization. Due to the focus on operations with a large potential margin, the medium-term bandwidth for our ROS target is >15%. Our medium-term ROCE target is a bandwidth of 22% to 25%.

Our market strategy demands qualifi ed staff. We offer an inspiring, safe and healthy working environment and seek to have an open business culture in which our employees are acknowledged and heard. Short lines of communication, delegated authority and entrepreneur-ship are typical of the way in which we work at TKH. The diversity of our workforce will bolster the success of our strategy. Exercising due care as an employer ensures that we hold appeal in this capacity. Combined with an innovative, entrepreneurial culture, this provides us with a healthy starting point, enabling us to fi ll vacancies rapidly with people having an appropriate profi le. We devote a great deal of attention to this, also having regard to the increasing scarcity of qualifi ed technicians, in respect of which it will be more challenging to fi ll such vacancies in the years ahead. The implementation of this strategy is strongly related to create a professional and fl exible organization where employees are given the opportunity to pursue their ambitions and experience further self-development.

TKH would like to make a contribution towards a sustainable society, so as to ensure that not only the effect of business decision on profi tability is considered but also its impact on the environment and our reputation. We attach a great deal of importance to the principles of good governance: integrity, transparency, accountability and adequate oversight. We ensure that our staff act with integrity and have drawn up clear guidelines. A ‘zero-tolerance’ policy is also pursued within the supply chain in relation to matters of principle, such as fraud, bribery and corruption. TKH constantly focuses on risk awareness as an integral part of its culture and applies different systems to embed risk awareness in the organization thoroughly in order to avoid and manage risks as far as possible.

INNOVATIVECONSTANT ATTENTION TO INNOVATION PRODUCES A RANGE OF

PRODUCTS AND SERVICES THAT GUARANTEE TECHNOLOGICALLY

ADVANCED SOLUTIONS.

TALENT EMPOWERMENTOUR PEOPLE REPRESENT OUR MOST IMPORTANT CAPITAL AND ARE THE

DRIVING FORCE BEHIND OUR SUCCESS.

BEING RESPONSIBLEWE WOULD LIKE TO MAKE A CONTRIBUTION TOWARDS A SUSTAINABLE

SOCIETY AND TO TAKE OUR RESPONSIBILITY IN THIS RESPECT.

VALUE CREATIONWE USE OPPORTUNITIES FOR GROWTH IN A TARGETED MANNER AND

LIMIT (FINANCIAL) RISKS.



STRATEGIC CONFRONTATION MATRIX

PRIORITIES

Reducing the number of activities that have limited opportunities for value creation• Activities with low organic growth opportunities and relatively low gross margins.• Non-high-end technology oriented or positioned in an environment where a larger

scale is needed in the long-term to support continuity.• Mainly positioned in non-vertical growth markets.• Be prepared for divestments with a profi t improvement program and potential for high

value creation on short-term, but belonging to non-core activities or to activities with low margins.

Integration of operating companies• Focus on integration - instead of coordination with strong local entrepreneurship.• Reinforced R&D, sales and marketing within the integrated companies with new

leadership.• Strengthening and expanding of TKH branding.• Reduction of the number of operating companies with at least 10 - 15 companies.• Implementing more operational excellence programs.

Develop a less complex business structure and communication structure

Increase ROS target to >15%• Divestments of activities with low margins and limited organic growth potential.• Profi t improvement to bring important innovations to maturity and intended profi table

business.• Further focus on vertical markets with above average margins – investing the revenues

of the divestments in more profi table vertical growth markets.• Limit the number of new ‘start-up’ projects in the next 1-3 years.

Accelerate organic growth by increasing the share of vertical growth markets• Divestment of activities with low organic growth leads to an increased average

autonomous growth.• To invest revenues from divestments in vertical growth markets.• Intensify the implementation of new business developments.

STRENGTHS

• Strong (niche) positions in defi ned vertical growth markets.• Customer-specifi c total solutions - in combination with technology platforms

usable for multiple applications.• Benefi ts of economies of scale by spreading technologies across product and

market combinations and in geography.• Good reputation and fi nancial strength.• Successful acquisition policy - good integration of (acquired) companies.• Organization model with local entrepreneurship and innovative capacity.• Quality and involvement of employees.• Interesting employer through profi ling entrepreneurship and development

opportunities.

IMPROVEMENT AREAS

• TKH is seen as an attractive company but has a complex organization, consisting of many activities.

• Brand awareness in conservative new markets where TKH wants to expand its market position with disruptive innovative technology.

• Making better use of cohesion and scale from local entrepreneurship.• Give operational excellence the highest priority for implementation in all business

units.• Give capital allocation more focus on maximum value creation for medium- and

long-term.



TKH AT A GLANCE

‘SIMPLIFY & ACCELERATE’ PROGRAM

In order to bring growth and profi tability to an even higher level, a strategic

transformation program was introduced in June of the year under review,

under the name ‘Simplify & Accelerate’. The program aims at simplifying

the organization and making better use of economies of scale. Ultimate

goal of the strategy program is an acceleration of organic growth linked

with better profi table activities with a higher growth potential.

Simplifi cation of the business structure is achieved by implementing an active divestment program, aimed at activities with a lower profi t potential. The divestment program comprises a total turnover of € 300 - € 350 million.

By integrating companies with a strong cohesion in activities and product portfolio, not only effi ciency will be achieved in the fi eld of R&D, commerce, fi nance and overhead. Ultimately, this simplifi cation will lead to a simplifi ed business structure with clear focus areas where acceleration of TKH’s performances is possible. It brings the desired focus to the realization of further value creation. It will lead to an even better bundling of knowledge in product development and will lead to effi ciency and economies of scale. This not only benefi ts our fi nancial results but also provides competitive advantage.

The implementation of this strategy program will have a positive effect on both the return on sales (ROS) and the return on capital employed (ROCE). The medium-term objectives have therefore been increased, for the ROS from 12-13% to at least 15%. The target for the ROCE has been raised from 21-23% to 22-25%.



STRATEGIC ROADMAP

VALUE CREATION

We use opportunities for growth in a

targeted manner and limit (fi nancial)

risks.

TALENT EMPOWERMENT

Our people represent our most

important capital and are the driving

force behind our success.

BEING RESPONSIBLE

We would like to make a contribution

towards a sustainable society and to

take our responsibility in this respect.

VALUE CREATION• Vertical growth markets: + € 300 - € 500 million (3 - 5 years).• ROS: >15%.• ROCE: 22-25%.• Net debt/EBITDA: 16 hrs./year.• Employee satisfaction: >7.1.• Illness rate: 15% of turnover.• TKH brand reinforcement and expansion.• Increase brand awareness in vertical

growth markets.

SIMPLIFY

Reducing activities that have limited

possibilities for value creation.

Simplifi cation of the business structure

through the integration of operating

companies.

Development of a less complex business

and communication structure.

ACCELERATE

Focus on activities with above-average

growth potential and return contribution.

Accelerate organic growth through an

increase in share of vertical growth

markets and use of economies of scale

and synergies.

A solid investment for shareholders.

A responsible and attractive employer.

Doing business in a socially responsible

manner.

STRATEGIC OBJECTIVES medium-termSTRATEGIC PRIORITIESSTRATEGIC PILLARS

MISSION

TKH AT A GLANCE

A leading innovative technology (niche) player

that creates comprehensive best-in-class

solutions which constantly exceed customer

expectations.

INNOVATIVE

Constant attention to innovation

produces a range of products and

services that guarantee technologically

advanced solutions.



TKH AT A GLANCE

EXTERNAL ENVIRONMENT

TKH AND ENVIRONMENTAL FACTORS

The environment in which TKH operates is dynamic and constantly

changing. In addition to developments in the markets and sectors in

which we are active, general national and international events affect our

daily operation. Trends are the indicator of future developments and give

us insight into the opportunities and risks for the medium- and long-term.

It is relevant to anticipate these trends and to align them to the wishes

and requirements of our stakeholders, such as shareholders, customers

and employees.

LIFESPANAging

GDPGlobal growth

of GDP

CLIMATEThe climate is

changing rapidly

RAW MATERIALSScarcity in

raw materials

TECHNOLOGY & DATA

More and faster developmentsGEOPOLITICAL

Moving economic forces

LAWS & REGULATIONS

Increase in regulation

TRANSPARENCYRequirements for

openness

TALENTScarcity

(technical) staff



TKH AT A GLANCE

TRENDS & DEVELOPMENTS AS A TECHNOLOGY COMPANY, TKH CLOSELY MONITORS DIGITAL TRANSFORMATION DEVELOPMENTS.

• The development of 5G is producing even faster mobile networks offering numerous new potential applications for, amongst other things, the Internet of Things in both the private and business sectors.

• The fourth industrial revolution is stimulating developments such as advanced robotics, autonomous transport, Artifi cial Intelligence and Machine Learning.

• There is a growing demand for more effi cient and accurate production processes to make machines capable of learning and guiding themselves.

• A product’s life cycle is determined mainly by its useful life and increasingly less so by its lifespan. This renders it necessary to innovate more rapidly, to retain or improve the competitive position.

OUR EMPLOYEES REPRESENT OUR MOST IMPORTANT CAPITAL AND ARE A DECISIVE FACTOR IN TKH’S SUCCESS.

• The population is growing, people are living longer and living standards are rising. In general, populations throughout the world are older, wealthier, live increasingly in urban areas and are increasingly connected through technology.

• The enormous amount of data which people generate and which is available to businesses, academics, public authorities and other parties is changing our daily life as well as the business community. Because of digitization, jobs will disappear but many other new ones will be created, mainly in the ICT and technology sectors.

• Work and private life are becoming integrated into new lifestyles and this demands that companies go along with this.

• Scarcity on the labour market (knowledge and capacity) can act as a brake on certain sectors.

TKH WISHES TO CONTRIBUTE TO A SUSTAINABLE SOCIETY.

• Greater awareness of the need to counteract the effects of climate change.• Global climate agreements demand energy systems sourced from renewable, sustainable

sources, such as wind and solar energy.• Raw materials are becoming scarcer and the prices of raw materials are increasingly more

volatile. By ensuring that raw materials are renewable it is possible to use them more effi ciently and to reduce waste fl ows.

People, economies and markets are infl uenced by a number of funda-

mental social trends. Such megatrends are -amongst other things- driven

by demographic changes and increasing digitization. These trends clearly

present challenges but also opportunities to satisfy current and future

needs. They are also important drivers for the achievement of growth in

the medium- and long-term, with the aid of which value is created for

our stakeholders. We rank trends in accordance with issues which are

strategically relevant to TKH.



GROWTH DRIVERS

• Call for greater comfort for parking attendants.• The emergence of frictionless parking through technology - Artifi cial Intelligence

application for automatic call handling.

MARINE & OFFSHORE• A large increase in power generated by wind energy throughout the world.• The energy transition is leading to an increase in the demand for cabling systems. • Willingness to invest in quality ships, cruise liners and luxury yachts.• Variation of the supply chain because of limited storage facilities in shipyards and on

platforms – high cost of stagnation.• Considerable demands on system availability under various environmental conditions, such

as extreme temperatures, humidity, oil and salt water.• A great deal of attention devoted to safety on platforms through special zone certifi cation.

MACHINE VISION• Increase in demand for vision technology thanks to the trend towards industrial auto-

mation and robotization as well as continued demand for higher productivity, improvement of product quality and production processes.

• Vision technology as an alternative to control production systems and for detection, inspection and identifi cation of manufactured products.

• A sharp increase in new applications in which vision technology is used.• Because of strict regulations governing the quality of food and medicines, vision

technology offers a solution to provide full traceability and to serve as a fail-pass module.

TIRE BUILDING INDUSTRY• High priority for the entire tire building industry to replace existing technology with the

emphasis on high productivity, effi ciency, the reduction of waste, application of new materials, improved quality, ‘track & trace’ of tire components within tire manufacturing and smaller batches.

• Strong increase in the number of types of passenger car tires requires more fl exible manufacturing methods.

• The trend towards even larger tire dimensions and towards safer, better quality tires is leading to a demand for technological development.

• A reduction of working capital requirements in the supply chain - stimulate local manufacturing in the tire building industry.

• ‘Eyes and hands off’ manufacturing: production systems offering greater productivity and operator independence.

FIBRE OPTIC NETWORKS• The internet has now become a utility, just like gas, water and electricity. Optical fi bre

as a major transport medium for the enormous need for bandwidth and transmission capacity is no longer an indispensable part of the society.

• Developments such as the Internet of Things, Industry 4.0 and the Internet of Vehicles demand high-speed internet (mobile and otherwise) – the emergence of 5G networks.

• 24-hour accessibility is becoming increasingly more widespread and accepted.

CARE• Life expectancy is continually increasing and healthcare spending is rising due to more

and better, but also more expensive care.• Growing demand for technological healthcare solutions.• Shortage of skilled workers. • Informal caregivers and healthcare professionals are equal partners; technological

support for the exchange of information as required.• A growing demand for medication (volume) because of demographic developments,

whereas there is a need to reduce the cost of healthcare.• The acceptance of robotization in the pharmaceutical wholesale sector.

TUNNEL & INFRA• High priority to make airports safer, to make airport infrastructure more readily available

and to deal with aircraft movements more expeditiously.• EU investments for the improvement of infrastructure.• Due to strict security legislation and regulations increasing demands are being made of

technical equipment in tunnels, amongst other places.• Growing demand for technologies in order to comply with strict requirements: evacuation -

communication - detection - identifi cation - safety - infrastructure availability is increasing.

PARKING• Income from parking garages is under pressure due to reduced inbound and outbound

traffi c fl ows.• Provide parking owners and operators with information more quickly and effi ciently

through a visual dashboard.• The use of technology leads to improvements in effi ciency, safety, access and payment

options - great interest in applying technology in smaller parking garages.• Boost the capacity utilization rate and income thanks to differentiated parking fees -

CO2 reduction via parking guidance technology.



MATERIALITY MATRIXSTAKEHOLDERS

Our stakeholders are those groups and individuals that directly or indirectly

infl uence, or are affected by, the activities of TKH and its operating

companies. In the context of our business operations and based on our

position in the supply chain, we are in regular dialogue with our stake-

holders. By entering into a dialogue with our stakeholders, we share and

test our vision, our strategy and our expectations with them, with starting

point, being able to further sharpen these themes in our business

operations. When conducting stakeholder dialogues we often work

together with our operating companies where customers, suppliers or

employees are concerned.

The materiality matrix is composed of issues that are material to TKH and our stakeholders. The horizontal axis depicts a scale of material subjects important to the TKH organization. The vertical axis ranks the subjects that our stakeholders believe are important. The greater the infl uence or relevance of a subject, the more material it is. By assigning a specifi c value to the subjects, it is easier to see which ones are the most relevant. The materiality matrix covers a period of several years and is a dynamic model, with the result that it is frequently necessary to assess whether subjects need to be raised or lowered.

RE

LEVA

NE

CE

FO

R S

TAK

EH

OLD

ER

SH

IGH

1614

10

11

13168

2

MATERIALS SUBJECTS

12

21

181217

19

310

146

RELEVANCE FOR TKH GROUP HIGHLOW

20

147

54

9

15

1

5

INNOVATIVE1 Innovation & technologies2 IT Security & Privacy3 Chain initiatives4 Portfolio management

VALUE CREATION5 Financial objectives6 Dividend policy7 Share price development8 Responsible tax policy

TALENT EMPOWERMENT9 Good employment

practices10 Health & safety11 Education & training 12 Diversity in workforce13 Sustainable employability

BEING RESPONSIBLE14 Integrity15 Climate change16 CO2 reduction17 Waste reduction18 Customer satisfaction19 Human rights20 Community investments21 Social responsible

purchasing22 Local presence

TKH AT A GLANCE

22



RELEVANCE TO TKH

RELEVANCE TO STAKEHOLDERS AND MOSTIMPORTANT EXPECTATIONS MEANS OF COMMUNICATION KEY TOPICS IN 2019 SUPPORTIVE TO OUR STRATEGY

EMPLOYEES • Crucially important for the success of TKH.

• The company’s ambassadors. • Most important ‘authorized capital’.

• Good employment practices.• Development opportunities and a good

package of primary and secondary employment benefits.

• A safe and healthy working environment.

• Internet and intranet.• Employee magazine.• Employee satisfaction survey.• Meetings.• Conferences and seminars.• Webinars.• Performance reviews.

• Health and safety.• Diversity.• Sustainable employability. • SDGs.• IT & Security / Privacy.• Strategic transformation program.

• Commitment to the diversity of the workforce.

• Learning organization.• Boosts innovative capacity.• Leadership and entrepreneurship.• Integrity & ‘zero tolerance’.

SHAREHOLDERS • Investment through a shareholding in TKH, thereby strengthening our capital position.

• Good return on investment with good dividend policy and long-term value creation.

• Internet.• Financial reporting and annual reports.• General meeting of shareholders.• Investor days.• Capital Markets Day.

• ESG.• SDGs.• Diversity.• Strategic transformation program.

• Long-term shareholdings.

CUSTOMERS • Buy products and services.• Develop sustainable package of

products and services through collaboration.

• Offer innovative, high-tech technologies and total solutions.

• Good ROI for customers.

• Internet.• Events, symposia and trade fairs.• Customer satisfaction surveys.

• Value chain initiatives.• Sustainable product portfolio.• SDGs.• Customer satisfaction.

• Technological developments.• Growth targets.

SUPPLIERS • Supply of services and products for our business operations.

• Fair business practices and doing good business at market rates.

• Business associates.• Negotiations.• Code of supply and site visits.

• Value chain initiatives.• Sustainable product portfolio.• SDGs.

• Technological developments.• Sustainable procurement.

ANALYSTS • With the aid of analysis and research, prepare profiles and ratings on the basis of which investors can make a selection for their investments.

• Honest and transparent communication about developments.

• Internet.• Financial reporting and annual reports.• IR meetings.• Capital Markets Day.• Reporting.

• Financial ratios.• Sectoral developments.• Strategic transformation program.

• Long-term value creation and transparency.

BANKS • Financial service providers with the aid of which TKH is able to achieve its growth targets.

• Creditworthy company that is appropriately balancing risks against returns and complies with contractual agreements.

• Internet.• Financial reporting and annual reports.• Half-yearly discussions.

• Financial ratios.• Risk analysis.

• Sustainable funding policy.

PUBLIC BODIES • Act as initiator, facilitator of supply chain and other projects, and driver of sustainability initiatives.

• Boost the economic appeal in the region with respect to business office location and employment.

• Supply chain initiatives with a signifi-cant contribution to sustainability.

• Internet.• Network and thematic meetings.

• Sustainable and other developments in the region.

• Strategic investment decisions.

EDUCATIONAL AND KNOWLEDGE INSTITUTIONS

• Influx of new talent in order to compensate for a shortage of technical personnel.

• Providing a challenging work environment with ample development opportunities.

• Providing traineeships – work experience.

• Internet.• Trade fairs and seminars.• Social media.

• Relevance of education (in relation to the relevant discipline).

• Profiling TKH as an interesting employer.

• Sustainable workforce.• Learning organization.

COMMUNITY AND SECTORAL ORGANIZATIONS (INCLUDING NGOs)

• Possess an extensive network and knowledge of the positions in the supply chain.

• Expertise in specific sectors.

• Contribute ideas and start up joint ventures.

• Internet.• Reporting and reports.• Annual reports.

• SDGs.• Climate change.

• Sustainable business operations.• Consolidate social initiatives.

STAKEHOLDERS DIALOGUE


TKH AT A GLANCE

TKH AND THE SUSTAINABLE DEVELOPMENT GOALSThe Sustainable Development Goals (SDGs), introduced by the United

Nations in 2015, are a blueprint for achieving a better and more sustainable

future. It is a universal call to take action for a sustainable world. TKH

recognizes the relevance of the SDGs, which indicate a clear direction how

a more sustainable society can be achieved. It also requires a pro-active

role for business and a new way of working within the chain.

In order to be able to make an effective and targeted contribution through the SDGs, we focus on those SDGs on which we have the greatest impact and to which we can contribute directly. In that context, we focus on four SDGs: sustainable and clean energy (7), decent work and economic growth (8), industry, innovation and infrastructure (9) and responsible consumption and production (12). We have compared these SDGs with our business operations and core activities and have looked at our entire value creation process.

Subsequently, existing KPIs were aligned with the SDGs so that insight was gained into what our contribution is and for which, additional actions are desirable. We also have analyzed the options in the chain. In the year under review, we explicitly discussed the SDGs in meetings with stakeholders. We explained the choice for the most relevant SDGs for TKH and it was assessed to what extent the chain partners have also an impact on these goals and can make a contribution. Topics such as recycling, sustainable product innovations and a learning organization were discussed.

INDUSTRY, INNOVATIONAND INFRASTRUCTURE

AFFORDABLE AND CLEAN ENERGY

DECENT WORK AND ECONOMIC GROWTH

RESPONSIBLECONSUMPTION AND PRODUCTION




STRATEGIC RELEVANCE TKH VALUE WHICH TKH CAN CREATE OUR CONTRIBUTION

7

SUSTAINABLE AND

CLEAN ENERGY

BEING RESPONSIBLE

In the case of all of our

operations we consider their

impact on the environment.

• Sustainable customer and

product portfolio.

• Innovation.

• CO2 reduction.

In its daily operations TKH continuously pays attention to the reduction of its

energy consumption and CO2 emissions. We have been working for decades on

reducing our energy consumption and CO2 emissions and manage this by setting

firm objectives. In addition, TKH develops technologies and solutions that

contribute to energy efficiency and the use of renewable energy, such as

sustainable cable systems for wind farms and CO2-neutral lighting systems.

8

DECENT WORK AND

ECONOMIC GROWTH

TALENT EMPOWERMENT

We have an open business

culture in an inspiring,

educational working environment,

in which our employees are

acknowledged and heard. We offer

a healthy working environment where

safety is placed centrally.

VALUE CREATION

Within our strategy, we make

effective use of opportunities

for growth and limit (financial) risks.

• Innovations.

• Financial targets.

• Responsible tax policy.

• Good employment practices.

• Vitality and safety.

• Diversity.

Employees can and should follow training courses enabling them to act effectively

and to develop their skills further. Good primary and secondary working conditions

are self-evident as well as a balanced workforce, taking into account diversity and

inclusiveness.

Focus on activities with an above-average value creation potential stimulates

growth and guarantees further continuity of operations. TKH conducts a

responsible tax policy.

9

INDUSTRY, INNOVATION AND

INFRASTRUCTURE

INNOVATIVE

Constant attention to

innovation produces a range

of products and services that guarantee

technologically advanced solutions.

• Innovations.


product portfolio.

Our technologies and solutions make it possible to build a sustainable infrastructure

which complies with strict safety requirements and efficiency. TKH’s technologies

and total solutions help our customers to operate more efficiently and we can

contribute to a circular economy. For TKH, innovation is a strategic spearhead for

further growth.

12

RESPONSIBLE CONSUMPTION

AND PRODUCTION

INNOVATIVE

TKH strives to achieve a

balanced, sustainable product

portfolio with innovative concepts

which are tailored to customer

requirements. Sustainability criteria

are becoming more relevant in this

respect.


product portfolio.

• Innovations.

• CO2 reduction.

• Waste reduction and recycling.

In our business operations, we constantly focus on improving environmental

performance. All production companies are certified for the ISO 14001

environmental management system and work according to the LEAN principle to

prevent waste. In the design phase TKH selects its raw and other materials in

such a way that they do not have any adverse effects on the environment.

TKH discusses sustainability with its suppliers through its code of supply.





RELEVANCE SDGs



TKH IN THE SUPPLY CHAINTKH develops and manufactures technologies, which are combined with each other to produce total solutions and are then positioned in predefi ned growth markets. A sound, effi cient supply chain process is crucial, if we are to respond to environmental factors and customer requirements quickly and promptly. Support is provided for operational excellence in the supply chain by employing clearly defi ned guidelines for controlling our operating

RESEARCH & DEVELOPMENT

In the course of product development and design

we use methods and processes which make

allowances for environmental aspects, such as

energy savings and recycling. We also expect our

suppliers to act in a sustainable way. In order to

ensure that this occurs, we have incorporated our

views into a code of supply.RES

EARCH & DEVELOPMENT

ENGINEERING

& O

PE

RAT

ION

S

KLA

NTEN

LOGISTICS

TECH

NOLO

GIE

S &

TECHNOLOGIES

TOTAL SOLUTIONS

GROWTH MARKETS

TOTA

L SO

LUTI

ON

S

REC

YCLI

NGCUSTOMERS

Thanks to our technology platforms and contribution

of specific product and market knowledge, we are

able to provide our customers with the best possible

solutions offering a favorable return on investment

(ROI) and desired efficiency effects. The scarcity of

raw materials and energy wastage are issues which

are discussed with our customers for the purposes

of subsequently establishing specific programs for

them.

LOGISTICS

We have steadily centralized our logistical distribution

operations. In the case of transport its impact on the

environment in the distribution chain counts a great

deal in addition to costs and duration.

ENGINEERING & OPERATIONS

We employ operational management models that

have been incorporated in an operational excellence

program. By doing so, we seek to achieve the

optimal performance of our operational processes

and the effects envisaged in relation to efficiency,

quality and safety.

TECHNOLOGIES & TOTAL SOLUTIONS

The four TKH core technologies are combined with

each other to produce innovative, total systems, to

be able to satisfy customer demand and to boost

our opportunities in the market.

CIRCULAR ECONOMY & RECYCLING

The composition of products constitutes the

basis for optimal recycling. Returning materials,

components and products to the appropriate

value chain can give rise to a sustainable business

model.

CU

STOM

ERS

TKH AT A GLANCE

procedures and pursuing a zero-tolerance policy with regard to issues of principle, such as the prevention of fraud, bribery and corruption, so as to ensure that work is done in accordance with the appropriate principles and arrangements. It is possible to conduct business sustainably by collaborating with our supply chain partners.

CIR

CU

LAR

EC

ON

OM

Y &



COMPETITIVE LANDSCAPE

• TKH has a geographic spread of its market area, where growth is primarily focused on Europe, North America and Asia. This allows us to make targeted choices for investments and we can process specifi c niche markets more actively.

• The strength within TKH is the combination of the four core technologies into unique total solutions. Due to our distinctive character of in-house developed technologies – among other things protected on the basis of patents - the spectrum of competitors is fragmented and focused on partial solutions. The entry threshold to the market is high because of our distinctive technological level.

• Our strategic transformation program has reduced the number of operating companies via integration of operating companies, leading to economies of scale. This makes communication lines even shorter and the organization more fl exible. We can switch faster, even when geopolitical and social developments occur, that lead to a reluctance to invest or a shift in focus on market areas.

• For a part of the product portfolio within connectivity, there is more competition. The distinguishing capacity here lies in the marketing of new technology -such as those for subsea cable systems and CEDD / AGL-, the high quality of the technology such as for specialty cables, or through the combination of connectivity with other TKH core technologies.

TKH AT A GLANCE

Developments in the industry and the competitive landscape are

important for our positioning in the market. There are changes in

customer patterns, acceleration in technological developments, an

increase in the demand for sustainable solutions and consolidation

of (industrial) sectors. Geographical spread, high-quality proprietary

technologies and the distinctive technological level are determining

factors for our competitive capacity.



LONG-TERM VALUE CREATION

INPUT

INTELLECTUAL Intellectual propertyWe focus on the development of our own advanced technologies and, in addition, enter into partnerships with suppliers of specifi c technology components or solutions. Software plays an increasingly important role as part of our core technologies, allowing us to integrate them appropriately and to ensure that they are smart in relation to analysis and control.

PRODUCED In-house and outsourced manufacturingWe have production plants which are involved in manufacturing in accordance with the LEAN and Six Sigma principles. To maximize ROCE and ensure the fl exibility of our capacity, our aim is to outsource as much of our capital-intensive production as possible. We maintain capital-intensive manufacturing capacity under our own control where it is important to do so for strategic reasons.

NATURAL Dealing with raw materials and general environmental valuesIn the case of each business decision we also consider its impact on the environment. As a procurer, TKH enters into active dialogue with its strategic suppliers in order to improve the sustainability of their products and processes. Sustainability in the supply chain is an increasingly important basis for operating sustainably as a company.

FINANCIAL Financial positionInvestors and banks provide us with capital through the capital and money markets. We invest capital particularly in our technologies and activities, from which we expect an above-average and long-term return.

HUMAN EmployeesWe employ talented, professional people and in this respect consider that our workforce is a good refl ection of society with its various aspects of diversity. We offer our people a safe, inspiring working environment and provide opportunities for further development.

SOCIAL AND RELATIONS Networks and partnershipsWe conduct our activities in accordance with the principles of honesty, integrity and transparency. We strive for committed stakeholders and enter into dialogue with them in order to share our vision, strategy and expectations. We believe that it is important to make a contribution to society and to invest in it.

TKH’s value creation process is a dynamic, ongoing one. It aims to

respond to the wishes and requirements of our stakeholders through

our business processes and to identify opportunities and risks at an

early stage, which are driven by economic, geopolitical, ecological,

sustainable, social and technological trends. Using sound R&D road-

maps, we focus on the development within the four core technologies.

By integrating these technologies effectively, we create unique,

innovative total solutions that are suitable for multiple markets.

Entrepreneurship and the development of talent are important

concepts within our group for the purposes of constantly boosting

our (long-term) value creation.



INNOVATIVEConstant attention to innovation produces a range of products and services that guarantee technologically advanced solutions.

VALUE CREATIONWe use opportunities for growth in a targeted manner and limit (fi nancial) risks.

TALENT EMPOWERMENTOur people represent our most important capital and are the driving force behind our success.

BEING RESPONSIBLE We would like to make a contribution towards a sustainable society and to take our respon-sibility in this respect.

CORE TECHNOLOGIES• Vision & security• Mission critical communication• Connectivity• Smart manufacturing

SOLUTIONS• Telecom Solutions• Building Solutions• Industrial Solutions

VERTICAL GROWTH MARKETS• Fibre Optic Networks• Care• Tunnel & Infra• Parking• Marine & Offshore• Machine Vision• Tire Building Industry

INTELLECTUAL A top quality organization and corresponding product portfolio may be achieved through:• Constant devotion of attention to new technologies and innovations.• Protection of technologies and IP rights via patents. • Sound R&D roadmap.

PRODUCED An effi cient, sustainable manufacturing environment may be achieved through:• Application of the LEAN and Six Sigma principles.• Production operating companies need to be ISO 14001 certifi ed.• Constant devotion of attention to the reduction of energy consumption, waste and recycling.

NATURAL Environmentally related elements may be guided through:• Sustainable use of energy and raw materials.• Operation in accordance with LEAN and Six Sigma principles, and ISO 14001.• Implementation of energy effi ciency programs.

FINANCIAL A fi nancially sound environment may be achieved through:• Healthy balance sheet ratio and a strong operational cash fl ow.• An above-average annual increase in earnings per share.• Focus on organic growth.• Achievement of stipulated internal ratios.• Achievement of a stipulated bank covenant ratio.

HUMAN Evidence of the improvement of human capital may be found in the following:• High employee satisfaction survey participation.• Constant investments in training and development for employees.• Devotion of increased attention to diversity.• Ongoing investments in health and safety.

SOCIAL AND RELATIONS Evidence of an involved, socially conscious business may be found in the following:• High customer and employee satisfaction.• Community investments.

INNOVATIVE• Turnover: € 1.5 billion.• Innovations: 20.5%.• R&D expenditure: € 63.2 million.• Subsidies and tax incentives for R&D: € 7.0 million.

VALUE CREATION• ROS: 11.6%.• ROCE: 17.4%.• Net earnings per share: € 2.72.• Debt-leverage ratio: 1.5.• Dividend pay-out ratio: 55.2%.

TALENT EMPOWERMENT• Number of training hours / FTE: 24.• Employee satisfaction: 7.3.• LTIF: 0.7.• Illness rate: 3.26%.

BEING RESPONSIBLE• Co2 emissions: -5.4%.• Waste: 7.2%.• Recycling: 85.5%.• Customer satisfaction: 7.9.• Breaches code of conduct: 0.• Community investment (in % net profi t): 0.5%.

TKH AT A GLANCE

BUSINESS OPERATIONS• Service• Assembly• Outsourced and in-house manufacturing• R&D and system engineering

CORE VALUES AS A GUIDELINE FOR OUR ACTIONS• Entrepreneurship• Integrity • Openness and transparency • Risk awareness and accountability• Sustainability






VALUE CREATION OUTPUT OUTCOME


DEVELOPMENTS & RESULTS29 FINANCIAL & NON-FINANCIAL RESULTS

30 INNOVATIVE & VALUE CREATION

30 GENERAL DEVELOPMENTS

33 FINANCIAL DEVELOPMENTS

35 DEVELOPMENTS PER BUSINESS SEGMENT

39 ACQUISITIONS, INVESTMENTS AND DIVESTMENTS

41 DIVIDEND PROPOSAL

42 TALENT EMPOWERMENT

50 BEING RESPONSIBLE

59 OUTLOOK


FINANCIAL & NON-FINANCIAL RESULTS

DEVELOPMENTS & RESULTS

in € millions (unless otherwise stated) 2019 2018Materiality

matrix

INNOVATIVE 1 Turnover 1,489.6 1,457.8

Turnover from innovations 20.5% 20.8% 1

R&D expenditure 63.2 60.8 1, 4

Subsidies and tax savings through R&D 7.0 7.4 8

VALUE CREATION 1 EBITA 2 172.5 175.0

Net profi t before amortization and one-off income and expenses attributable to shareholders 3 105.3 114.2

Market capitalization 4 2,136.8 1,742.8 7

EBITA/turnover (ROS) 11.6% 12.0% 5

EBITA/average capital employed (ROCE) 17.4% 21.3% 5

Net debt/EBITDA ratio 1.5 1.5 5

Dividend yield on closing price 3.0% 3.4% 6

TALENT EMPOWERMENT 5 Number of employees (FTE) 5,980 6,533

Number of training hours per FTE 24 25 11

Employee satisfaction 7.3 7.2 9

Lost Time Injury Frequency (LTIF) 0.7 n.a. 10

Illness rate 3.26% 3.47% 10

Number of employees with restricted opportunities on the labour market 120 94 12, 13

BEING RESPONSIBLE 5 Carbon footprint (CO2 emissions in mln kg) 45.2 46.0 16

Fleet: CO2 norm, expressed in gr/km 91.1 91.8 16

Waste 7.2% 8.7% 17

Recycling % (most relevant raw materials) 85.5% 79.7% 17

Customer satisfaction 7.9 7.9 18

Breaches code of conduct 0 0 14

Signed code of supply 89.9% 81.9% 14

Community investments (% of net profi t before one-off income and expenses) 0.5% 0.4% 20

1 The fi nancial fi gures for 2018 and 2019 in this overview are presented on the basis of ‘continued activities’. These are the fi gures excluding the divested industrial connectivity activities (‘discontinued operations’).

2 Before one-off income and expenses.3 Amortization of intangible assets (after tax) related to

acquisitions.4 Including the shares repurchased by TKH.5 KPIs and objectives are listed under chapter

‘Sustainability statements and Reporting system’.




1,500

1,250

1,000

750

500

250

2015 2016 2017 2019*2018*20142013201220112010

In the year under review, we took an important step with

the introduction of our ‘Simplify & Accelerate’ program.

TKH sees the execution of the program as a high priority and

it has broad support across the organization. The divestment

of activities with limited organic growth potential is on track.

We have already realized € 250 million of the intended € 300 to € 350 million turnover in divestments. In addition, TKH has reduced the number of operating companies through integration with a focus on economies of scale. This has resulted in a simplifi ed organizational structure with fewer companies and a focus on activities with higher value creation potential.

INNOVATIVE &VALUE CREATION


TURNOVER DEVELOPMENTin million €

The past year was a turbulent one, due to geopolitical and social

developments, which resulted in a reluctance to invest in a number of

market segments. We booked good progress in our strategic transfor-

mation program ‘Simplify & Accelerate’. We are now better positioned

to take advantage of economies of scale and synergies. We are also well

on track to achieve our return targets and to take our value creation to a

higher level. TKH realized a ROS of 12.9% in the second half of the year,

despite the headwinds we faced in a number of end markets, which

means it is moving fi rmly in the direction of our ROS target of at least 15%,

a target we raised mid-2019. Macroeconomic uncertainties have increased

in recent months. So far, the impact of the coronavirus seems limited for

TKH. This also applies to the nitrogen and PFAS crisis in the Netherlands

and possible international trade barriers. It remains diffi cult to predict

possible future consequences. The order book of the entire TKH Group

provides a strong basis for further value creation, as a result of which TKH

is well positioned for the medium-term.

GENERAL DEVELOPMENTS

* Excluding the divested industrial connectivity activities.



The execution of the program resulted in one-off expenses of € 18.3 million in 2019 and an impairment of € 5.0 million. These expenses are related in particular to:• The proposed decision to relocate the cable production in Ittervoort to

Haaksbergen and the discontinuation of the poorly performing activities in the industrial connectivity portfolio.

• Integration of security activities and portfolio under the brand name TKH Security, the merger of the activities in Singapore, and the integration of our Parking activities and portfolio.

• Phasing out of the Dutch system integration activities. • Integration of 2D vision activities and portfolio and increased

commercial cooperation between 2D and 3D Vision. • Implementation of cost-saving measures in the French and German

Building connectivity activities. • Integration of the TKH Airport Solutions organizations in the

Netherlands, Germany and Denmark. • Integration of Ognios (mission critical communication) in the Commend

organization. • Costs of the divestment of the Chinese operating company ZTC,

manufacturer of copper data communications cables. • Costs for the acquisitions of Commend AG, ParkEyes, SVS-Vistek and

FocalSpec.


SUBSEA CABLE FACTORY LOCHEM (THE NETHERLANDS)

The integration projects and improved returns will have an estimated positive impact of € 7 to € 8 million annually on the results from 2021 onwards. We expect to realize around € 5 million of this in 2020.

We also made good progress with our innovations in terms of both technology and market penetration. These now account for 20.5% of turnover. Key new developments include innovations in machine vision for 5G smartphone manufacturing systems, UNIXX tire building technology, subsea cable systems and CEDD/AGL connectivity technology. The new product launches and the contracts we acquired provide a strong basis for growth and continued value creation.

R&D expenses increased by € 2.4 million to € 63.2 million. As a technology company, it is necessary to remain up-to-date regarding the technological lead. The ambition for the growth to be realized, requires a highly innovative character and associated R&D costs and investments. It is important that the effectiveness of the R&D investments is tightly monitored, as well as the intended return on these investments and expenditures. The fact that innovation turnover, consisting of innovations introduced in the market in the past two years, was again at a high level of

16

14

12

10

8

6

4

2

in %

2019*

EBITA before one-off income and expenses (in € mln) ROS (in %)

EBITA AND ROS DEVELOPMENTin million €

200

175

150

125

100

75

50

25


2015 2016 2017 2018*20142013201220112010

R&D EXPENSES

MILLION

€ 63.2




20.5%, confi rms the effectiveness of our R&D efforts. A follow-up was given to the program to further focus on the portfolio of activities, for the sake of shareholder value creation and to create an optimal return on the activities in the most suitable environment. Where limited value creation is possible in the TKH environment, this should lead to a divestment of activities in the coming years.

The geographical distribution of turnover remained reasonably in line with the previous year, despite intensifying the disinvestment activities. The share of turnover in the Netherlands remains the same at a level of 20%. The share of turnover in Europe excluding the Netherlands increased to 43% and the share of turnover in Asia decreased slightly to 22%. The share in North America remains with 13% the same. Turnover in the other geographical regions was 2%.

TURNOVER VERTICAL GROWTH MARKETS 2019in million €

FIBRE OPTIC NETWORKS

TURNOVER 137

BANDWIDTH GROWTH SCENARIOS 175-200

CARE

TURNOVER 58


TUNNEL & INFRA

TURNOVER 133


PARKING

TURNOVER 59


MARINE & OFFSHORE

TURNOVER 54


MACHINE VISION

TURNOVER 143


TIRE BUILDING INDUSTRY

TURNOVER 330


R&D expenditure (in € mln) R&D expenditure in % of turnover

in %

R&D EXPENDITUREin million €

70

60

50

40

30

20

10


2015 2016 2017 2019*2018*20142013201220112010

4.5

4.0

3.5

3.0

2.5

2.0

1.5

GEOGRAPHICAL DISTRIBUTION OF TURNOVERin %

2019 2018

Netherlands 20 20

Europe (other) 43 41

Asia 22 23

North America 13 13

Other 2 3

2019



The operating result before amortization of intangible assets and one-off income and expenses (EBITA) amounted to € 172.5 million in 2019, down 1.5% from the € 175.0 million recorded the previous year. EBITA at Telecom and Building Solutions was up 9.5% and 8.5% respectively, while EBITA at Industrial Solutions declined by 11.8%. ROS dropped to 11.6% (2018: 12.0%).

The ‘Simplify & Accelerate’ program and the acquisition costs together resulted in one-off expenses of € 18.3 million (2018: € 4.2 million) for the full year 2019 and an impairment of € 5.0 million (2018: € 1.5 million).

Amortization costs were € 10.0 million higher at € 50.1 million, primarily due to acquisitions (+ € 6.8 million) and high R&D investments in recent years.

FINANCIAL DEVELOPMENTSTurnover increased by € 31.9 million (2.2%) to € 1,489.6

million in 2019 (2018: € 1,457.8 million). TKH recorded an

organic decline in turnover of 1.9%. Acquisitions made a 3.9%

contribution to turnover. Lower raw materials prices had a

negative impact of 0.2% on turnover, while currency exchange

rates had a positive impact of 0.4%.

At Telecom Solutions, organic turnover growth was 3.1% in 2019, while Building and Industrial Solutions saw declines of 2.7% and 2.8% respec-tively.

The gross margin rose to 48.2% in 2019, from 47.3% in 2018. This increase was partly due to a changed product mix, the normalization of start-up costs for new technologies and lower purchasing prices.

Operating expenses before one-off expenses increased by 6.0% compared with 2018, mainly due to acquisitions (+5.2%) and currency exchange effects (+0.6%). R&D expenses, 55.5% of which were capitalized as development expenses (2018: 49.6%), increased to € 63.2 million in 2019 (2018: € 60.8 million), due to the acquisition of technology companies. Operating expenses as a percentage of turnover increased to 36.6% in 2019, from 35.3% in 2018. This increase was mainly due to the expansion of production capacity in 2018 and lower production levels in 2019 for subsea and industrial cable systems. In the course of the year, we maintained capacity at a higher level than required in the short-term, in view of the medium-term growth perspective. Depreciations amounted to € 45.3 million in 2019, up € 19.2 million when compared with 2018. This was due to the depreciation expense resulting from the capitalization of right-of-use assets as a result of the implementation of IFRS 16 Leases as of 1 January 2019 (+ € 16.1 million), as well as a higher investment level than in previous years.


FOCALSPEC HIGH SPEED 3D LINE CONFOCAL SENSORS



Financial expenses increased by € 3.8 million to € 10.1 million in 2019, due to the application of IFRS 16 and a higher average outstanding bank debt. Currency effects also had a negative impact of € 0.9 million (2018: negative impact of € 0.2 million). The result from other associates was € 1.5 million lower due to lower volumes and prices of preforms at associate and preform producer Shin-Etsu in China, while one-off expenses are still having a downward impact on the contribution from the new minority interest in Cable Connectivity Group.

The effective tax rate was 23.1% in 2019 (2018: 21.8%). Fiscal R&D facilities, such as the Dutch innovation box facility, had a downward impact on the overall tax rate. Non-deductible impairments increased the effective tax rate by 0.5% in 2019.

Net profi t from continued activities before amortization and one-off income and expenses attributable to shareholders declined by 7.8% to € 105.3 million in 2019 (2018: € 114.2 million). The divestment of the majority of TKH’s industrial connectivity activities, recognized as ‘discon-tinued activities’, resulted in a gain of € 45.2 million (2018: € 10.8 million), including a net book profi t of € 38.9 million.

Net profi t for the full year 2019 amounted to € 113.9 million (2018: € 108.7 million). Earnings per share before amortization and one-off income and expenses amounted to € 2.51 (2018: € 2.72). The ordinary earnings per share amounted to € 2.72 (2018: € 2.58). The cash fl ow from ordinary operations was € 182.2 million in 2019 (2018: € 126.7 million). In 2018, a signifi cant increase in working capital had a negative impact on cash fl ow, while 2019 saw only a minor change in working capital. At year-end 2019, working capital as a percentage of turnover declined to 13.0% (2018: 13.9%), and remained within the bandwidth set of 12%-15%. Net investments in tangible fi xed assets were lower than in previous years at € 30.6 million in 2019 (2018: € 40.0 million). A major part of this was related to investments in production facilities. Investments in intangible fi xed assets for R&D, patents, licenses and software increased to € 40.4 million, largely due to the acquisition of the technology companies (2018: € 35.2 million). Total spending on acquisitions was € 65.5 million in 2019 (2018: € 116.2 million). The divestment of the majority of TKH’s industrial connectivity activities

generated proceeds of € 83.5 million. On the other hand, TKH acquired a 41.5% minority interest in Cable Connectivity Group for € 16.4 million. Solvency improved slightly to 43.7% in 2019 (2018: 42.4%). TKH’s net bank debt, calculated in accordance with the fi nancial covenants, had declined to € 300.6 million at year-end 2019, down € 26.1 million compared to year-end 2018. The net debt/EBITDA ratio stood at 1.5, which means TKH was operating well within the fi nancial ratio agreed with its banks.

TKH had 5,980 employees (FTEs) at year-end 2019 (2018: 6,533 FTEs). Divestments reduced the total number of employees by 606 FTEs. Acquisitions accounted for an increase of 161 FTEs. The company also had 310 (FTEs) temporary employees (2018: 482 FTEs).


Telecom Solutions

TURNOVER PER BUSINESS SEGMENTin million €

800

700

600

500

400

300

200

100

20162015 2017 2018* 2019*Building Solutions Industrial Solutions




DEVELOPMENT PER BUSINESS SEGMENT

TELECOM SOLUTIONS

Turnover in the Telecom Solutions segment was 3.0% higher at € 200.5 million. Organic turnover growth was 3.1%, while currency exchange rates had a negative impact of 0.1% on turnover. Growth was realized primarily in the sub-segment fi bre network systems.

EBITA was up € 2.7 million. The ROS improved to 15.4% from 14.5%.

FIBRE NETWORK SYSTEMS This sub-segment saw organic turnover growth of 4.7%. The slowdown in growth in China was offset by growth in turnover in optical fi bre network systems in Europe. This growth was recorded mainly in France and Germany. We were able to compensate for pressure on prices in the Chinese market through the lower purchasing prices of raw materials for optical fi bre and a higher contribution to turnover from the connectivity portfolio. This resulted in an improvement in gross margin. We completed the expansion of the optical fi bre production capacity in the second half of 2019.

KEY FIGURES TELECOM SOLUTIONS

in € millions (unless otherwise stated) 2019 2018 change Turnover 200.5 194

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